When you apply for a mortgage, the interest rate that you are given is basically the going rate for the day, which means if you pre-approve your loan, the weeks or even months later that you find your home you cannot be certain that the rate you were quoted is still in effect. This is why many lenders are not offering a lock in period for mortgages.
The reason that lenders have began offering a lock in period for these rates is because they realize that people take time to find a home and that the interest rate has a huge factor between what you can afford mortgage wise. This is having a lock in period rate is a great advantage to all those searching for their perfect home.
When you can you have a lock in period? It’s during the application for a mortgage, the process of getting approved, or when you are approved for the mortgage. Each financial institution will have different rules regarding when they give the lock in period. You will just have to find this out beforehand if it is a huge factor in finding your mortgage.
The normal time of a lock in period is thirty days. This means that for example, if you get a lock in rate of 6.2% with one point, then if your purchase your home within those thirty days; this is what your mortgage rate will be. If you are looking for a longer lock in period you will find that the interest rates are much higher just because it is a chance for the lenders to offer a low rate over such a long period of time.
The lock in period is a great thing; however, it can against you. You may find that you are locked in at a higher rate than what is current with the market. In these situations you will have to see if your lender will work with you to reduce the rate or not. It depends entirely upon the institution that you are working with.
Once the lock in period has expired, the rate is over. You are then given the new market normal rate, which may be higher or lower, it really depends on the market. There are ways in which in a lock in period can vary.
For example, the rate may be locked as well as the point or the rate may be locked but the points not. These are the types of things that you will need to find out before you accept the terms, such as your applications and documents.
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When the market rate is constantly fluctuating, it is best to choose a mortgage with a lock in period to avoid these drastic changes in rates.
